One of the most
interesting things about the purchase and sale of options is their
opportunities vigilant merchant to structure business with profit potential
regardless of market direction. A
number of techniques have been developed to provide these opportunities, some
difficult to master and some very simple.

There is a lot of math that could cover a solid understanding of this measure, but for our purposes here is what you need to know to use it successfully in the negotiation:

Delta
is a measure that indicates how the option price moves as a relationship
between the underlying price movement. A
'in the money' (ie the price of the underlying stock is very close to the
option exercise price) contract will have a delta of approximately 0.50. In
other words, if the stock moves $ 1.00 for up or down, the option is about $
0.50.There is a lot of math that could cover a solid understanding of this measure, but for our purposes here is what you need to know to use it successfully in the negotiation:

Note that, as the control options much the same contract (100 shares) of stock, the delta can also be considered as a percentage of the stock and the option contract. For example, possession of a call option with a delta of.63 should gain or lose 63% of the money as owning 100 shares would be. Another way of looking at things: the same option with a delta of 0.63 will win or lose as much money as owning 63 shares.

How about put options? Although the options will have a positive delta (ie the call will move when the stock goes up and down when the stock price moves down), the options will have a negative delta (ie selling moves in the opposite direction of the underlying). Since the market neutral trading strategies work for the balance of positive and negative deltas, these strategies are often called delta neutral "trading strategies.

One last note on the delta: this measure is not static. As the price of the underlying stock moves closer or farther from the exercise price of the options, the delta will go up and down. "In the money" contracts will increase to a higher delta, and "money" contracts with a lower delta. We do this by balancing the positive delta of a stock against negative delta of a put option (or options).

Calculate the delta for an option contract is a bit involved, but do not worry. Each broker options provide this number and some other figures known collectively as the Greeks, in their rating system. Example: at the time of this writing, the QQQQ ETF is trading just over $ 45 Delta 45 put (three months off) is -.45.

This position is very safe. As the stock moves up or down, the sales contract will spend the same amount in the opposite direction. The position is covered so that the small market movement will not greatly affect their value.

This is where the fun begins: Remember what was said earlier about Unreliable delta? Becomes optional in the currency, which is the delta is larger (or more negative in the case of a sales contract). If the stock moves to the other side and the option becomes out-of-the-money, the delta approaches zero.

Stock up:
Negative Delta sales approaches zero. In
this situation, the loss of value of the sales contract decreases, resulting in
a net profit for the entire position.

Stock
moves downwards: Negative delta of the sale becomes more negative, so
that the portion of the portfolio declines in value, put the value increases at
a rapid pace. The result is a
net profit in the portfolio.

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